Digital wars

Cable TV and direct-to-home, or DTH, operators are engaged in a fierce battle in the four metros of Delhi, Mumbai, Chennai and Kolkata. By October 31, the two million or so analog TV households need to upgrade to digital feed or face blackout. Their options are either digital cable or DTH. This is just the first round. The rest of the country has to move to digital TV in three phases by December 31, 2014. The outcome of the first phase, the hits and misses, will pretty much determine the result of the other phases. The stakes are huge: 140 million analog homes will be up for grabs in the next three phases. Behind the placid environs of bedrooms and living rooms, a fierce battle is being fought for television feed with all the weapons in the armory: price wars, freebies et al.

It is a battle that will bleed all in the beginning: DTH companies bear a cost of up to Rs 2,500 to acquire a customer, while the cost for digital cable TV is around Rs 1,000. But these are costs they must incur, losses they must bear, to ensure their survival in the long run. So, both the parties have begun to stock up on hardware — set-top boxes, dish antennae et cetera — and have beefed up their retail network, improved their customer interface and upped their installation capabilities. Anybody who runs out of stock will lose customers, perhaps forever, to rivals. “The nuts and bolts that need to get fixed on ground are the toughest," says Harit Nagpal, CEO of Tata Sky, the country’s second-largest DTH operator (market share of 19 per cent, the same as Airtel Digital). “When a user who has not digitised for the last six years asks for a connection on October 31 at noon, we have to ensure that we get it to him by 2 pm. When this gets replicated by hundreds of people, you can imagine the scale of infrastructure needed to service that demand."

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Of the 9.4 million TV homes in the four metros, according to a survey done by the ministry of information & broadcasting based on the 2011 census, 6.84 million, or over 72 per cent, are cable TV homes, and 2.56 million, or less than 28 per cent, are DTH homes. Of the cable TV homes, over two-thirds have already digitised, which leaves almost two million homes up for grabs. So, cable TV actually has an edge over DTH here — it already has a presence in the target households. All the customer has to do is install the digital set-top box. Cable TV includes the multi-system operators, or MSOs, the large aggregators, and local operators for last-mile connectivity. With digitisation, MSOs will interface with the consumers directly through a set-top box; they will service as well as bill them directly. This puts a question mark on the neighbourhood cable operator. Some of them might reinvent themselves as the sale and service agent of MSOs.

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The DTH operators know they have to start with this handicap. They are responding in many ways. They are, for instance, beefing up their retail presence. Subhash Chandra-promoted Dish TV, the country’s largest DTH company with a market share of 23 per cent, has not only doubled the network of its dealers but also hired a phalanx of direct-selling agencies. Its tie-ups with recharge networks such as Oxygen will increase its resale footprint. Airtel Digital TV CEO Shashi Arora points out that his team is leveraging the parent brand’s (Airtel’s) presence to get customers. “From handset outlets and consumer durable outlets to mobile network posts, our aim is easy availability for the consumer. There is still scope for distribution expansion in the first phase," says he. Sharing the sales and distribution talent on the telecom and DTH teams, the company is mapping telecom data and audience profiles to reach out to TV households.

Because they are far bigger in size than the local cable operators, DTH companies have learnt management of customer-relations better. Their backend and frontend expertise is higher. This, they are confident, will help them in the first of the four phases of the battle with cable TV. Analysts agree that it will take time for the MSOs to get their backend infrastructure and servicing right. Indeed, calls to toll-free helpline numbers of a number of MSOs either met with abrupt disconnections or directions to talk to the local cable for any information, a far cry from the call centres of the DTH players.

What might work against DTH is the reputation that the service stops whenever there are strong winds or rains, and the fact that other services like broadband can’t be bundled into it. Vivek Couto, the executive director of Media Partners Asia, the Singapore-headquartered media consultant, adds that DTH operators face capacity constraints, and, therefore, offer fewer regional channels than cable operators. “As a result, they will become more aggressive on their trade and consumer offerings to compete with digital cable," says he. The signs are already there. Dish TV has announced that it will offer 70 free-to-air channels such as the Doordarshan channels and B4U and 9X free of cost. So, if the subscriber does not recharge, her Dish TV set-top box will still air these channels rather than go blank. Dish TV COO Salil Kapoor says: “We are offering free what the Telecom Regulatory Authority of India (the sector regulator) has asked cable operators to offer for Rs 100. More importantly, this will make our customer stick to us because the set-top box won’t stop working if she misses a recharge." However, the customer will have to keep her recharge date with Dish TV at least once every six months to avail of this.

Other DTH players don’t rule out competing on cost with the cable operator this time. “I expect cable operators to pick up a larger share in the run up to the first phase because most of the remaining people are their customers. But if his business can afford price-play, so can mine. I have a bigger business across the country," says Nagpal of Tata Sky. “Moreover, none of the MSOs has had the experience of running digitised networks which require infrastructure for day-to-day requests, offer recorder boxes, video-on-demand and value-added services. Their cost tactics will come to an end now that transparency will increase and it will be fairer to us because both of us will have similar profits or losses."

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MSOs could respond by packaging the channels intelligently. A senior official of Indusind Media & Communications, which owns Indigital, a large MSO covering Maharashtra, Delhi, Gujarat and some southern and eastern markets, says: “We will keep two or three bouquet of channels, so that our local cable operators can easily explain the options to the new digital customers. If customers want channels and bouquets beyond these, they can then call our helplines to activate them within the next 24 hours." Apart from the mandatory free-to-air basic pack of Rs 100, Indigital’s pay packs will start from around Rs 200. Gaurav Gandhi, COO of Indiacast, Viacom18 and TV18’s distribution arm, says that there is a lot of momentum among consumers following the advertising campaigns by broadcasters on digitisation and simple channel packages will be the way to go in the beginning.

Ernst & Young Partner Devendra Parulekar points out that MSOs have till now worked in a B2B environment (dealing with local cable operators), but now they will have to switch to the B2C mindset because they will need to talk to the customer directly. The transition won’t be easy. Companies like Hathway might have a shorter learning curve because of their B2C broadband business, while Indigital is banking on its parent Hinduja Group’s call centre network to handle the heavy traffic. But they’ll need to do more. In the months following the Phase I deadline, MSOs might also decide to offer customers channels free of cost, taking the hit themselves, a tactic to retain their existing analog clientele. The payment for the set-top boxes, costing anywhere from Rs 700 to Rs 900, could also be done in installments. Mihir Shah, Media Partners Asia’s India-based analyst, says: “The current debt-to-equity ratios, vendor financing and inventories of all the major MSOs can fund seeding of set-top boxes at subsidised rates in the first phase and partially in the second phase as well." For now, cable operators have already invested Rs 1,500-2,000 crore in the four metros, according to a FICCI-KPMG report, which includes installing set-top boxes and putting up the digital infrastructure.

Still, Media Partners Asia reckons that only around 20 per cent of the analog cable households would churn to DTH, which is below its current share of 28 per cent of TV homes. This means, cable TV’s share of the pie could increase from the current 72 per cent. The odds, it seems, are loaded in favour of cable TV.